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SOUTHWEST AIRLINES’ BID TO ACQUIRE FRONTIER NOT SELECTED AT AUCTION

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The following information was issued today by Southwest Airlines via news release:

SOUTHWEST AIRLINES’ BID TO ACQUIRE FRONTIER NOT SELECTED AT AUCTION

Carrier’s Refusal to Remove Labor Requirement Key in Decision

Southwest Airlines confirmed today that its bid to acquire Frontier Airlines was not selected.  Southwest submitted a bid of more than $170 million to Frontier Airlines on Monday, Aug. 10, 2009, in accordance with the procedures established in the U.S. Bankruptcy Court for the Southern District of New York. 

“We said all along that we would only move forward on this deal if it proved to be the right decision for our Employees and financially prudent for our Company,” said Gary Kelly, Southwest’s Chairman of the Board, President, and CEO. “We have a mission to preserve and protect our Culture and the best interests of our Employees, Customers, and Shareholders.  This was a great opportunity that required us to act fast.  A lot of people worked very hard with every intention of making this work.  We were fortunate to be in a position to examine the acquisition to see if it was the right decision for Southwest Airlines. We chose not to amend our bid to remove the labor requirement, a key reason our bid was not selected.  Our congratulations to Republic Airways and Frontier Airlines.”

As stated in its initial statement of interest on July 30, 2009, Southwest said there would be several contingencies to be resolved for a deal to go through.  Key in its position, Southwest was not willing to remove the need for the two Pilot Unions to reach agreement. Southwest says its Culture and relationships with its Employees are too important to compromise.

“Southwest remains committed to serving the Denver market with our low fares and excellent Customer Service,” Kelly said.  “We began serving Denver in 2006 with just 13 flights and have grown to offer 112 nonstop daily flights today.  We are very pleased with the response we have seen to our service and growth in Denver, and we will continue to compete vigorously in the market.” 
 
One of the contingencies in Southwest’s proposal was that labor groups from the two airlines would need to reach an agreement on how the two Pilot Unions (SWAPA and FAPA) would work together.  Despite a good faith and diligent effort by all involved, including the top leadership of the Southwest Airlines Pilots Association (SWAPA) and the Frontier Airlines Pilots Association (FAPA), who labored long into the night, the two unions were not able to come to an agreement before the auction deadline.  As a result, Southwest’s bid was deemed unacceptable.

Frontier filed for bankruptcy court protection in April 2008.  Southwest submitted its initial indication of interest to acquire Frontier Airlines on July 30, 2009, which gave the carrier an opportunity to engage with Frontier in the due diligence required to determine the scope of a binding proposal.  Southwest submitted a bid of more than $170 million to acquire Frontier on Monday, Aug. 10, 2009. 

89 Comments

  1. It’s October 2 and now the Republic deal is 100% done. I think Southwest should now buy Lynx Aviation from Republic. It has been making a nice profit and everyone knows the Q400′s are 30% more fuel efficient than other commuters.

    Southwest could grow its Denver presence by having Lynx feed them instead of the “new” Frontier owned by Republic. Republic doesn’t want any turbo props in its fleet.

    Alaska airlines certainly has proven a feeder like Horizion (its wholly owned commuter) makes sense and lots of dollars. Southwest could own the smaller markets like Aspen and other cities that don’t work well with 737′s.

    Lynx would be a great buy with brand new airplanes, a separate certificate and well trained crews. Go get em Southwest

  2. Southwest Airlines – please, please, please start flying into Alaska!!! Check out the comments to the possible Frontier purchase and how excited Alaskan’s were about the possible service to Anchorage – talk about an untapped market!
    Someone needs to give Alaska Airlines a run for it’s money. (Alaska Airlines, what do I mean…rather Seattle Airlines….)

  3. I just want to say that it’s absolutely amazing that SWA started and kept this blog alive with all of the negativity in its threads. I am – and always will be – a fan of Southwest Airlines (as just a regular old passenger) and think some of what was said in here was uncalled for. I think this blog deserves more positivity, so I’m going to provide some.

    I love Southwest Airlines for the following reasons, and have been flying them for 15 years:

    1) This company thrives on making it affordable to fly. From weekly fare specials, to Ding! fares (that conveniently and frequently show up in your task bar with a cute little piece of mail on the tail of airplane), to their Featured Destination, you can get a great deal to great US cities often. I can cite many specific examples of fares I’ve gotten for less than $100, and can only recall paying more than $200 on two or three (of ~90) occasions. SWA has spoiled me to the point that fares over $200-250 are appalling!
    2) Southwest has a great rewards program. After flying 8 roundtrip trips, you can get a free flight. This program has (understandably, considering the economy) offered fewer of the “double rewards” it used to offer, but I have gotten SEVERAL free tickets on SWA.
    3) Southwest has some of the greatest employees on earth. They are positive, cheerful, helpful, funny, concerned, and passionate about keeping up a great reputation for themselves and their company. I’ll never forget the time a flight attendant said “meow” over the intercom around 35 times while explaining that we were arriving to Chicago on time and beginning our descent.
    4) Southwest has an excellent record of leaving on time, and getting places early. I’m not the type to look up the exact stats, or how they compare with other airlines, but I’ve experienced very few late departures (luckily, the times I did, I really needed the flight to be as late as I was running), and very few late arrivals (maybe even none…).
    5) The Spirit magazine they have on board is always interesting. I know they encourage it, but I’ve taken many of them home with me.
    6) I happen to love the fact that, regardless of flight time, I always get a package of peanuts and a little snack whose smell is non-offensive to people sitting around me. While some people may complain about an airline that does not provide in-flight food service (not many do these days anyway), I like the fact that if it’s a longer flight, I know I need to pick up my own lunch or dinner.
    7) They don’t hate my bag (and I just love that commercial!). I rarely check bags, but if I did, I sure wouldn’t want to have to pay for it. If, however, it was necessary to keep the company alive, I would.
    8) Each month in Spirit magazine, they take the time to recognize an outstanding employee and an outstanding customer (or group of customers). There are full pages dedicated to these people, and I think it’s just amazing. The CEO or CIO also make it a point to dedicate an article to the magazine talking about their experiences with the airline industry, with travel in general, with customers who’ve touched their hearts. They’ve told beautiful stories of personal and emotional times in our nation’s history that shall never be forgotten and many stories of the happiness and joy travel brings to families during the holidays. I’ve never felt like I’ve known the beliefs and values of the top executives at a major corporation the way I feel like I know SWA’s.
    9) Southwest and its employees gives millions of dollars and a lot of time/hours (again, don’t know stats) to various charities around our country. The great employees of Southwest make perfect fits as true altruists!
    10) Southwest makes no bones about valuing its employees over its customers. I’ve read several accounts of this fact in the Spirit magazine, and to be frank, didn’t really understand it at first. How could a company value its employees more than its customers? Well, clearly, it’s great for any employee to work for a company that believes in this. Every working person would agree, right? Every consumer who believes that the customer is always right may not. However, it is clear to me that the trickle down effect of this value system makes for a very positive customer experience. And, you gotta love a company that loves its people.
    11) Southwest’s stock symbol is ‘LUV’ for goodness sakes! Enough said. (it’s not over yet, though)
    12) Southwest has never (knock on virtual wood) crashed. They only fly one type of aircraft for several business reasons, no doubt, but the main driver behind this is passenger safety. Every pilot and co-pilot knows how to fly the plane, every bagging agent knows how to appropriately and safely load baggage, every person on the maintenance crew knows how to maintain the aircraft and knows everything that could possibly be wrong with the plane if something doesn’t look or sound right, etc. Bottom line is, I feel SAFE on Southwest Airlines.
    13) This company, its corporate culture, its loyal customer base, and its sheer success is documented in many business articles and books and is studied in business schools around the country. Many companies admire, but can never achieve, the (near) perfection that is SWA.
    14) New one from today: They have the character, confidence, transparency, and courage to publish and maintain this particular blog.
    15) Southwest does not think of it as a business opportunity to make money when people need to change their flights – regardless of the reason. It’s rarely free to change your flight last minute, but you’re not going to be paying $100+ to do so.
    16) There are probably a good 10 more reasons I think this airline is great, but I’m winding down and hope I’ve made enough of a point.

    To all the other Southwest customers and employees that happen to love this company, I hope you choose to make your voice heard here as well. To those of you who have posted threads on this site, I sincerely wish you all the best. Mergers/acquisitions are no fun, and tend to scare people. I truly hope that the deal that was reached will be the best for all involved.

  4. I must say that I’m so pleased to learn that Southwest could not go through with acquiring Frontier Airlines! Such a move would ruin them for good!!! And here’s why.

    For starters, Southwest flies and all-737 fleet – just one aircraft type exclusively! Frontier – on the other hand – flies Airbus A318s, A319s, A320s, and Bombardier Q400 turboprop aircraft. That’s right, folks, TURBOPROP AIRCRAFT. Airbuses and Q400s are NOT Boeing 737s, and therefore SHOULD NOT be operated by Southwest!!!!

    I do recall when Frontier flew a sizable fleet of 737s back in the 80s and 90s, but they have all since been replaced by Airbus and Bombardier Q400 aircraft. The Q400s are also operated by Lynx Aviation, a subsidiary of Frontier. Neither the Q400 or the Airbus share any type of interchangeable parts with Boeing 737s, and this would mean that Southwest would need to have a relatively large stash of parts and supplies at each of their major maintenance bases – primarily Love Field, Hobby, Oakland, Midway, and so forth.

    As I recall in an article I read back in 1994, it was co-founder and now former CEO Herb Kelleher’s objective to not only employ just one aircraft type in the Southwest fleet, but also to provide exceptional customer service, point-to-point air service (which means bypassing the major hubs to reach their intended destinations), no in-flight meals, NO flight services to ANY destination outside the lower 48 US states (and this includes Alaska and Hawaii, folks), and so forth. These services have been the key to Southwest’s long-running success over the years, and if they were to buy an airline that neither provides these same services nor flies the same type of aircraft, then there just could no longer be any success at Southwest Airlines – PERIOD!!!!!

    And between you and me, folks, I just could not imagine seeing Southwest’s color scheme painted on the fuselage and tail sections of a Bombardier Q400 or Airbus A319. It would look just so doggone out of place!! Southwest’s colors belong exclusively on Boeing 737s – no ifs, ands, or buts!!!!! Now, I do recall in 1979 when Southwest leased a single 727-227 from Braniff Airways, but that plane was a sister Boeing aircraft with interchangeable parts. This was a short-lived lease, though, and soon WN was once again back to operating as an all-737 carrier.

    Last month, I wrote a single-page letter to Southwest, stating my lack of support for them to acquire Frontier Airlines – because I knew something was amiss. I told them they needed to get themselves back on track, or they would never be successful again. And it’s not that I’m afraid of flying aboard a turboprop. I have done this in the past, and I’m fine with that. But the Q400 has a bad reputation as being a somewhat non-reliable aircraft. SAS Commuter was forced to retire their fleet of Q400s last year, on account they were having trouble with landing gears that kept collapsing upon touchdown – or they would fail to open altogether. And then there was that airplane crash involving a Colgan Air (CO Connection) Q400 just outside Buffalo, New York, in February this past winter. That was a tragic nightmare, and all lives on board were lost!!! Recall that???? Sure, the Q400 might look like a sweet bird, but it’s all personality and NO character whatsoever!!!!!!!

    And so, folks, this is my statement. Southwest had best be glad they were not selected for this bid to acquire Frontier, because had it gone through with this I most definitely would not fly with them ever again! I don’t fly that much anyway, because I really can’t afford it. But I usually can tell whenever a problem is about to arise when someone is about to make a bad business decision!!

  5. What surprises me is the large number of F9 fans and F9 employees who are sitting on the Southwest Airlines Blog. It appears there may be some SWA Envy going on. I give the F9 employees less than a year before they are banging on SWA’s door looking for a job. Oh wait. SWA was probably where they dropped their first application and they didn’t get selected.

  6. Whew, what a relief to know our home town airline is not being gobbled up by Southwest! Frontier has nice new CLEAN planes, nicer people and the ability to watch TV or a movie on a long flight. I travel quite a bit (4-5x a month) and will always pick Frontier over all others when I can. After that is a toss up between UAL and SWA, usually UAL though because of miles and the greater destinations out of Denver.

    It is great knowing that Frontier is not going to be bought then torn apart by the sore bullies on the block. Southwest thought they could buy their way into profitability in the Denver market, think again. Frontier focuses on being the best airline in the industry and it shows in everything they do! Way to Go!

  7. I am very disappointed with the attitudes of some of the people posting here. If they are employees of either airline, I wouldn’t want to work for either of them. It is great that you all are proud of your respective companies, but you need to show professional courstesy and respect for one another.

    Frontier, you can’t blame SWA for attempting to buy, not merge with, (there is a difference) your airline. You have a great product with great customer service and awesome employees. Buying a whole airline for $170 million is a steal. SWA had nothing to lose and everything to gain by making a run at it. It made perfect sense for them to try.

    SWA, you can’t blame Frontier employees for being scared about being bought out by you. You pretty much admitted that Frontier would go away in 2 years as you asorbed their
    routes. I know that would sour my attitude towards SWA if I worked for Frontier. You too have a great product with great service and awesome employees. Keep it up and it won’t matter that you didn’t win the bid.

    I wish the best for both airlines. Frontier, I pray things work out for you all and that
    Republic treats you with the respect that you deserve. SWA, I applaud the loyalty shown to your employees and hope that you keep it up.

  8. Critics who watched the process closely said Southwest’s bid wasn’t ready for prime time. Southwest executives “seemed not to understand the dynamics of the process or the obvious bottlenecks and complexities involved,” said industry consultant Mo Garfinkle of Arlington, Va. Southwest “was naive and it didn’t know it. It underestimated Republic and its talented management team, and it overestimated the reception to a Southwest bid, especially by the Frontier stakeholders.”

    Southwest withdrew its bid Thursday evening when the pilots’ unions of the two airlines could not reach agreements before the auction process, as was required by Southwest’s offer. The offer would have given pilots more pay, but kept them at the bottom of the seniority list

    that’s not nice………………

  9. Thank you, Gary Kelly.

    For showing that Southwest is dedicated to it’s customers, employees, culture, and stockholders!

    Not to mention showing through all of this, that Southwest is the TRUE low cost carrier in Denver.

    Now that the auction is over, and Sean Menke was asked to stay on at Frontier the truth is out.

    “Menke conceded on a conference call with reporters Friday that the auction outcome—leaving Southwest as a competitor rather than owner of Frontier—”makes it tough” for airlines to boost fares and achieve profitability in Denver. “I’m not going to beat around the bush on that one. That’s why we’ve been focused on the cost structure.” ”

    So one can only conclude, that the only reason their fares have been low, is because Southwest entered the market, as the TRUE low cost carrier.

    As for those of you responding to the post above:

    “I don’t understand why Frontier employees feel confident that they will keep their jobs with Republic.

    “Pilot labor expert and airline consultant Robert W. Mann said Southwest’s executives can’t be blamed for thinking that Frontier pilots would see the prospect of higher pay and potentially greater job security in the Southwest bid as attractive.

    “Frontier pilots need to look at the facts,” he said. Republic has said it would operate Frontier separately from its other regional jet operations, but Republic replaced all the pilots and planes at Midwest Airlines when it bought Midwest this year and could do the same to Frontier’s operations down the road, Mann said. “”

    After reading in Buisness week today.

    I would beg to differ that they have all the facts yet, as I am certain that they are not all worked out, and not all those maintnance jobs will stay in Denver.

    But what is certain, as it has been stated by Bryan Bedford on behalf of republic. ” Some of Frontier’s Airbus 319s will migrate to Milwaukee for new nonstop flights to the West Coast. Republic also is likely to seek cost “synergies” for its expanded fleet, in terms of maintenance and other aircraft operations. ”

    “There’s not a lot of organic growth in the fixed-fee contract flying business,” Bedford said. He added: “I hope these transactions don’t negatively affect these relationships in the long term.” Which one might conclude he is concerned about legacy carriers considering Republic as a competitor now, and further decreasing it’s market capital.

    Add that to the following from the same article.

    To date, Midwest has flown only Boeing 717s, which do not have cross-country range. Vaughn Cordle, an airline analyst and former pilot, said in a note Friday that Republic’s small market capitalization—”suggests that Republic will want to move aggressively to displace as many Airbuses as fast as practical to lower its average costs.”

    I would not be on here posting how all of you at Frontier are keeping your jobs, and your airbuses, as it sounds as if they may be leaving.

    You can see for yourself, as I know you are going to dispute it. ( I supose you will claim Southwest has some conspiracy with buisness week or something. )

    The article is located here
    http://www.businessweek.com/bwdaily/dnflash/content/aug2009/db20090814_542215.htm

    I have been amazed at how many Frontier employees, find the need to come post here on the Southwest Blog. (I don’t understand why their company cannot post on their own blog. If they do not have one, then make one.)

    But at any rate, congradulations on sticking with your employees, customers, and share holders Gary Kelly.

    As a huge fan of Southwest!

    I am a loyal Southwest customer, and I hope you continue to expand your great brand!!!

    Don’t let those Frontier people get you distracted, it seems by the newsweek article there maybe allot of them with time on their hands, to just come in here and distort facts and antaganize a fantastic airline.